Buffalo Law Review | Law Journals | University at Buffalo School Of

TRIBUTE†

IN MEMORY OF LOUIS A. DEL COTTO, 1923–2005

† This Tribute would not have been possible without the efforts of the following members of the Buffalo Law Review—Sachin Kohli, Editor-in-Chief, 2005-2006, Dennis Wiley, Executive Publication Editor, 2005-2006, Michael D. Mann, Managing Editor, 2005-2006, and Rachael M. MacVean and Jeffrey A. Davis, Executive Publication Editors, 2006-2007.

377

Remembering Louis Del Cotto

DIANNE BENNETT† He was a tall man, dressed in a dark suit, white shirt, tie, angular features, deep-set Italian eyes, piercing into our fear. No doubt we, the seemingly experienced law school sophomores in the Class of 1975, might even have visibly quaked. At least we all remember being afraid of Tax A, as the introductory required tax course at SUNY at Buffalo Law School then was called. And we feared it even more, because we were taking the course from the person reputed to be the most challenging of professors, Lou Del Cotto. What we soon learned was that Lou Del Cotto was the consummate teacher. One might be able to measure Lou’s success as a tax teacher statistically. It seems to us who went on to practice tax law that the number of tax practitioners produced by Lou, and Lou and Ken Joyce1 together, is extraordinarily high. We never intended to be tax lawyers, say most of us who are tax practitioners today; it was all Lou’s doing. But we do not have those statistics, so the anecdotal evidence must suffice. Partly because of Lou’s uniqueness, I knew when I was asked to write a piece about Lou in this tribute issue of the Buffalo Law Review, I could not do it alone. The Class of ’75 seemed to me an unusual class, and I called on three of my

† Dianne Bennett was a partner, including managing partner for a term, for thirty years at the Buffalo-headquartered law firm, Hodgson Russ LLP. She served on the tax policy staffs of both the U.S. Congress and the U.S. Treasury Department in the late 1970s, the latter position under Donald C. Lubick, the author of another tribute article to Lou Del Cotto in this volume. Ms. Bennett has been elected to the American Law Institute, American College of Tax Counsel, and American College of Employee Benefit Counsel, among other recognitions of her career in tax law. She describes herself now as “mostly” retired, while she continues to be active in law and community service, primarily in Buffalo, New York. 1. Ken Joyce—who also has written a tribute piece in this issue—was mentored by Lou, and became one of University at Buffalo Law School’s most honored teachers himself.

379

Copyright © 2007 by Buffalo Law Review 380 BUFFALO LAW REVIEW [Vol. 55 fellow classmates—all tax lawyers more than thirty years later—to help figure out just what made Lou, and perhaps our class’s relationship to him, unusual. In the 1970s, Tax A was a required course, normally taken in the second year. We were sophomores when the Class of 1975 ventured onto SUNY at Buffalo’s North Campus, becoming in 1973 the first students to take classes in the first—and only— building on that campus (for me, driving in from Fredonia, it seemed more like Siberia than Buffalo). We were the last of the small law classes, numbering fewer than 170. So, with eighty-plus of us to a tax section, we sat on the carpeted tiers of one of the new, and as yet unfurnished, O’Brian Hall classrooms, at best wary of Tax A. Wary, because Tax A was rumored to be difficult, and getting assigned to Professor Del Cotto’s class seemed to be drawing the short straw. That’s the recollection of four of us who were there: with me, Richard F. Campbell, my partner in the Tax Department at Hodgson Russ LLP in Buffalo for over thirty years; Barbara D. Klippert, now a partner at the preeminent tax law firm in New York City, McKee Nelson LLP; and Timothy Cotter, who remains at the Internal Revenue Service Chief Counsel’s Office in Buffalo after his more than thirty-year career with the IRS in Washington, D.C. and Buffalo. Even with us students of the 1970s, with our jeans and long hair and long jewelry to match, sprawled on the colored carpets, Lou kept his formality. The generation gap was heightened by the times and intensified by Lou’s personality. He not only looked formal and imposing, he addressed us by our last names (“Mr. Campbell,” “Mr. Cotter,” “Mrs. Barth” (Barbara had another last name), “Mrs. Graebner” (so did I)), and I am sure we shook when he called on us. As Klippert now recalls, “I was scared to death of taking tax.”2 Lou emanated earnestness, seriousness. He leaned his tall frame forward from the bottom of that pitched, large classroom, and honed in on the student who was the focus of his modified (even if it did not seem so at the time) Socratic method. “If you didn’t learn, he took it personally,” is the way Campbell describes it; Lou certainly made you feel that. Klippert contrasts his teaching style to those teachers she had then and since who

2. Cheryl D. Block, a professor of tax for more than twenty years, describes some of this same fear in her tribute piece in this issue.

Copyright © 2007 by Buffalo Law Review 2007] TRIBUTE TO LOUIS DEL COTTO 381 don’t seem to care if the class is over your head. Surely, you knew, Lou cared. “He demanded no more of his students than of himself,” says Cotter. Of course, that is saying a lot. Cotter remembers Lou telling him long after our days in his tax classes that he would tear up his notes after the end of each year and start over again the next year, because, Lou told Cotter, he learned more from the students each year and wanted to reflect that experience. “Imagine,” says Cotter, “that from a guy who had it all in his head.” This story may be apocryphal, and Ken Joyce may know the truth, but I preferred not to check it. Even if apocryphal, the story illuminates Lou. Klippert also recalls some of us talking to Lou outside of class one day. Lou, according to Klippert, said that—as much as we were scared of him—he was scared of us. “Don’t you remember that?” she asked me, “That was amazing to me.” Now that I reflect on this, his own anxiety must have been part of what made his teaching great. Each class was a challenge to him, a challenge to communicate to us, his students, and an opportunity for him to learn from us, but learn in a manner that was not at all comfortable, it appears. Inside all that earnestness (and apparently anxiety) clearly was passion. As Cotter puts it: “passion combined with effort.” Lou did not make what he did seem easy. What these stories illustrate is the ways in which Lou “struggled with us,” to use Klippert’s language. “We were always working with him in figuring out those concepts,” she said. With Lou, the students were working together with him to solve tax problems. And that may be a hallmark of a great teacher: one who makes you feel you and he are in the game together. Dick Campbell and I recall taking Tax A because we were required to do so; Tax B, because we liked Tax A; Tax C (Corporate Tax) because we liked Tax B; and Tax D (Corporate Reorganizations), because we liked Tax C. Almost twenty students, a record number as I recall, ended up in that fourth tax course from our small Class of ’75. As the luck of the draw had it, we had all those courses with Professor Del Cotto.3

3. I sometimes joked with Ken Joyce that he was the best tax teacher I never had for tax.

Given that the four of us, along with dozens of others, became tax lawyers, there had to be more to Lou’s teaching than his passion. He had to convince us of his regard for, and the worthiness of, the subject. I know that tax sometimes is considered on a lower rung of the law school curriculum. Some would say it is technical, it is black letter law, it is not conceptual, it is not socially relevant. Perhaps Lou’s greatest lesson to us was putting the lie to this trivialization of tax law. Lou taught us to regard tax law as a high form of the social-compact in at least three ways: he taught us to look for what is right, to understand the basic concepts in ways few can imagine, and to appreciate beautiful writing. In our years at Hodgson Russ, Dick Campbell and I, who both like to say we are joined at the hip, often would bat around ways of solving problems for clients, and always would say, “Well, this is the right answer; now what does the Code say?” Lou taught us that, and Don Lubick4 never let us forget it. As students, before we even looked at what the law was, recalls Campbell, Lou made us look for the right answer (without hammering us over the head with what later would be called political correctness). There are too many rules in tax law to learn them, as Campbell notes; you cannot just learn the rules and be a good tax lawyer. You have to understand what the answer should be. As I think back now, what is the right answer, how do we know what the answer should be? Part of what Lou taught us, and that remains part of our analytical skills today, is finding the right answer from the perspective of logic. If you parse the basic principles, and if you understand those principles, then you can ascertain what the answer should be. People may disagree over whether taxation should be progressive or not, how progressive it should be, or whether it should give incentives or not. But, one can analyze a particular statute in terms of whether it serves a particular purpose well, properly, and efficiently. Lou taught us to look first at that correctness, and then to look for the Code answer (which more times than not is not the “right” answer, as we all know). In looking for the right answer,

4. Donald C. Lubick, who held the highest tax policy position in the Executive Branch under two U.S. Presidents, Carter and Clinton, notes in his tribute piece in this volume that at Hodgson Russ he hired many of Lou’s students.

Copyright © 2007 by Buffalo Law Review 2007] TRIBUTE TO LOUIS DEL COTTO 383 one also can understand the political influences in the tax law, in ways that are much more illuminating than simply being told those influences. Both Cotter and Klippert reflected on how Lou taught them to think logically and read a statute. But, how did he do it, I asked, as I tried to recall myself. One way was his passion and collective effort, as noted above. Another was his desire to plumb the depths of even the most elemental concepts. Both in his teaching and in the articles Lou wrote with Ken Joyce, they took the most basic parts of the tax world and rigorously analyzed them—“The particle physicists of taxation,” as Cotter aptly put it. If one understands those basic concepts, and builds through each level of a statute, one thinks logically and works towards the right answer (even if the statute is not written logically), and understands much more than any technician ever can. Can one look for the right answer, think logically, and write beautifully at the same time? The answer for Lou had to be “yes.” Klippert recalls Lou critiquing for her one of her answers in a blue book. The first two questions, he told her, your writing had flow to it, but in the third question, your writing just did not flow the way it did in the others. How many tax teachers are looking for “flow” in answers to tax questions? Lou did. I recall, in my paper on the scintillating (and now obsolete) topic of corporate earnings and profits in our Corporate Reorganizations class, I used an analogy, calling a solution a “band-aid on a bleeding wound.” In the final draft, I took out this corny turn of phrase. Lou had not criticized this turn of phrase in the first draft, but he noticed I had removed it, and he gently let me know, after the fact, that taking out this cliché was the right thing to do. I also recall, working in a small study group, one of our group coming up with the phrase “contingent beneficiary waiting in the wings” to describe a tax pattern. I used that in an answer in my blue book, and Lou was enthralled with the concept of “waiting in the wings.” Lou’s delight with the phrase is what makes me remember it.5 He loved the appropriate turn of phrase that made it easier for people to grasp the concept.

5. I did let Lou know the phrase belonged to fellow classmate Joan Hollinger.

Lou showed us, in essence, the beauty of the tax law, based in its elemental structure. “A beautiful wholeness, beautifully integrated, simple principles that fit together if you grasped the basic concepts,” to use Klippert’s words. As the other articles in this tribute issue demonstrate, Lou was not simply a teacher of tax law. His scholarly work is extensive, and his work with Ken Joyce is remarkable. The intellectual interplay between the two of them is something at which to marvel. You can see that interplay in their writings, which Ken describes in his piece in this issue. I also was fortunate to see it when they helped me teach Tax I (as it then had become) in the 1980s. I filled in for a couple years as the third introductory tax teacher. Lou and Ken each taught a section, and Bill Greiner had been teaching the third section, until he was called on to higher posts at SUNY at Buffalo. Lou and Ken showed me some of the backstage of their teaching. The care with which they approached each class should not have surprised me. They both gave an enormous amount of intellectual and moral support to each other. They are in many ways one of the great pairings of intellectual endeavor in the law. As a student, I recall reading (even if Cheryl Block does not) at least a few of Lou’s law review articles as part of our classes. Like Cotter, I remember them being “tough going.” Lou was demanding of his readers. No sentence was easy; no basic tax principle simply assumed. Lou first published in the Buffalo Law Review in 1962, a procedural piece on the need for a Court of Tax Appeals.6 From 1965 through 1969, he published six pieces in five years. Property in the Capital Asset Definitions: Influence of “Fruit and Tree”7 is the most memorable for us of ’75. The whole concept of “fruit and tree”—which was the capital asset and which was income (of course, and much, much more)—was so influential in our courses that, at the end of one semester, our class gave Lou a fruit tree. There is still some debate over whether it was a pear or an apple. The generation gap, not so much in age but in culture, meant Lou had to acclimate to aspects of our class, including our casual dress. (I showed up for orientation in a

6. Louis A. Del Cotto, The Need for a Court of Tax Appeals: An Argument and Study, 12 BUFF. L. REV. 5 (1962). 7. 15 BUFF. L. REV. 1 (1965).

Copyright © 2007 by Buffalo Law Review 2007] TRIBUTE TO LOUIS DEL COTTO 385 skirted business suit, which, after seeing my fellow students in that August day of 1972, I never wore to school again.) I noted above Lou’s formalism; contributing to that no doubt was his Italian heritage, which Dick Campbell and I both share and understand through our mothers. Lou also had to deal with feminism. The Class of ’75 was the first class to have a significant number of women students. Many of us were nontraditional students—again, the beginning of what would become a trend—but we did not know that then. I had a one year-old child when I started at SUNY at Buffalo Law, and I had been out of college for seven years. Almost no one else had children, and certainly not young children (one of my fellow female students told me I should have waited until my kids were in school before I went to law school). It seemed like a generation had passed (as my suit on orientation day indicated). We need to remember it was novel for Lou to see all those female faces, and the zeal with which we pursued our studies. I recall as a student being in his office one day when he commented that the women students were really good; it was fairly clear we had surprised him. He never treated us any differently from the men, from what I could tell. But I know we took him a bit aback. Lou’s wife, Beatrice, told me only recently that “Lou wasn’t a modern man, you know, at home.” He did not want Bea to go to Italy without him, and he did not want to go—so she could not go, she said. The end of that story is that she eventually did go, without him. And, quite early on in our law school careers, I think Lou learned to appreciate us, the female students. To focus on Lou just as a tax teacher and scholar also misses much of the man, even to those of us who knew him almost solely as a teacher. His complexities as a person became apparent to us. Lou had a social side that was not obvious in the classroom. One of the places it emerged was at a few end-of-semester parties. Remember, these were parties in the 1970s. Lou was invited, and some were a bit nervous about his fitting in. But, he surprised us too. He was a guitarist, and played jazz (Lubick may remember classical, but I know jazz). He played at those student parties. And, one night, after the student days, following some event, Lou, Bea, my husband, Bill Graebner, and I ended up at the now defunct St. George’s Table, in downtown Buffalo, listening to a jazz group Lou knew about, and dancing.

When the four of us from the Class of ’75 reflect on Lou’s contributions, we readily see how Lou changed our lives. He communicated to us his passion for the beauty of the tax law. He taught us to be caring of tax policy, to be entranced with basic principles, to be logical, and to be just darn good tax lawyers. We all regret that tax is no longer required at SUNY at Buffalo Law School, and that Lou is no longer teaching it. Lou’s contributions were important to us all, in fact, indelible. Yet, this is how I want to remember Lou Del Cotto: the world’s best tax teacher dancing with Bea to a swinging jazz combo in a smoky downstairs club.

Remembering Louis Del Cotto

CHERYL D. BLOCK† Had it not been required when I attended the law school at SUNY at Buffalo, I am quite certain that I would never have taken even the introductory course in Federal Income Taxation, let alone any more advanced tax classes. I was, and continue to be, terrible at and frightened of math and never took a course in accounting. As a political science major in undergraduate school, I began law school thinking that my career would take me to some area of government or public interest law—civil rights, employment discrimination, environmental protection. As I have since learned, life’s bumpy road often takes unexpected twists and turns along the way. As a tenured member of the law faculty at the George Washington University Law School, I have now been teaching federal tax courses for just over twenty years. I attribute much of what and where I am professionally today to Professor Louis Del Cotto. When I began in 1976, I was unaware that the law school was privileged to have an extraordinary and well- known tax faculty. Unlike most undergraduate and graduate school programs, law schools generally do not have “departments” as such. At Buffalo, on the other hand, Professor Del Cotto was an essential part of an extraordinary team of tax professors who truly worked together to ensure that one course fit seamlessly into another.1 Professor Del Cotto was primarily responsible for developing that curriculum. It was clear to all of us that Professors Del Cotto and Kenneth Joyce were partners both as teachers and scholars, co-authoring many well regarded and much-cited academic articles. The scholarly work that Professor Del Cotto did, both separately and collaboratively, clearly enriched what he did in the classroom. He brought

† Professor of Law, George Washington University Law School; J.D., State University of New York at Buffalo, School of Law (1979). 1. I did not have the privilege of taking tax courses with Professors Bill Greiner and Al Mugel, who were also an integral part of the tax team.

385

Copyright © 2007 by Buffalo Law Review 386 BUFFALO LAW REVIEW [Vol. 55 with him a passion for the subject and an ongoing deep intellectual curiosity. Students in the tax program at Buffalo were quickly disabused of the notion that tax law was about beady-eyed number crunching and accounting. Indeed, both Professors Del Cotto and Joyce made it clear that tax law is about something much bigger. As the Oliver Wendell Homes, Jr. quote that graces the entrance to the Internal Revenue Service building in Washington, D.C. reminds us, “Taxes are what we pay for civilized society.” Although we surely studied the details of many tax statutes and cases, we also came to understand that tax law has an impact on virtually every aspect of life and public policy. Without losing sight of practical applications, students learned in tax class to look at statutes and cases in light of their larger economic, fiscal, and societal impact. Although I now also teach cases and statutes, I realize that I am not so far from my original interests. Our tax laws address vital issues about distributive justice, poverty, welfare, protecting the environment, decreasing the federal deficit and much more. I am not sure that I would have appreciated all of this without Professor Del Cotto’s guidance. In addition to opening my eyes to the big picture, Professor Del Cotto also provided a role model for my approach to teaching and to my students. Professor Del Cotto used what might be referred to as a “modified” Socratic method very effectively. As I tell my students today, student mistakes in working through problems and cases can often be more pedagogically useful than correct answers. If one student misunderstands something, chances are that others do as well. Often the incorrect answer reflects an alternative way that Congress might have written the statute. Such “mistakes” can serve as a useful opportunity to discuss the larger policy issues at stake. Professor Del Cotto was challenging but not intimidating in the classroom—at least he never meant to be intimidating. I must admit to being terrified when he called on me in Corporate Tax. This was entirely due to the overwhelming complexity of the subject matter, however. Professor Del Cotto was always gentle and patient with students who were as confused by the material as I was. I was also terrified by the final examination—with good reason, as it turns out. Corporate Tax was actually my lowest grade in law school. I now attribute this to simple

Copyright © 2007 by Buffalo Law Review 2007] TRIBUTE TO LOUIS DEL COTTO 387 panic. I must have learned something. Who would have thought that I would not only be teaching the course today, but that I would have published a major treatise on the subject? I could not have achieved the successes that I have without the formidable foundation that Professor Del Cotto provided me. I do not recall reading Professor Del Cotto’s scholarly articles as a law student. As I began in the teaching profession, however, I came across his work all the time. He was a prolific scholar. The breadth and scope of his work was vast, covering a broad range of issues in tax policy and administration. Here again, Professor Del Cotto, along with Professor Joyce, was an incredible role model who set the bar extremely high. I am extremely grateful for his generosity in taking the time to read and comment on early drafts of my academic work. I know that I am not alone in my tremendous affection and respect for Professor Del Cotto. As a testament to his extraordinary influence as a teacher, several former students recently joined to endow the Louis A. Del Cotto Fund for Excellence in Tax and Tax Related Studies. The funds will be used to provide support for scholarships to students interested in taxation, faculty research in the tax field, and to bring distinguished speakers to the law school. I am confident that this is exactly how he would have liked the funds to be used. I feel honored and privileged to have had Professor Del Cotto in my life. He will be sorely missed by all who knew him, but his legacy lives on.

Remembering Louis Del Cotto

KENNETH F. JOYCE† Louis A. Del Cotto and I were tax colleagues and friends for over three decades. Our shared experiences were consequently such that it is impossible in this short memorial note to discuss at any length the multitude of his talents and strengths. I will try, however, to give a brief glimpse of him, as a teacher, a scholar, and a friend, in a way that I think he would approve. As a tax teacher and scholar, Louis Del Cotto was driven by the wisdom of Justice Louis Brandeis’ admonition that, “[i]f we would guide by the light of reason, we must let our minds be bold.”1 To Lou, the Internal Revenue Code was, at least presumptively, a coherent whole and the interrelationship of its provisions was key, to be discovered and revealed, even if only through merciless analysis. To take one of his favorite classroom exercises, “Suppose,” he would say, “that a personal injury claimant received from a defendant as damages not cash but property—say Blackacre—worth $100,000. What would the plaintiff’s “cost” basis be in Blackacre in light of the fact that § 104(a)(2) of the Code allowed the plaintiff to exclude Blackacre from gross income? After all,” he would say seductively, “if a primary function of basis is to ensure that taxed receipts are not

† Professor of Law, University at Buffalo Law School. 1. New State Ice. Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting). The quotation was a favorite of a third Louis, Professor Louis L. Jaffe, who had been a law clerk to Justice Brandeis in 1932. See Louis L. Jaffe, Was Brandeis An Activist? The Search for Intermediate Premises, 80 Harv. L. Rev. 986, 992 (1967). Lou and I were both students of Prof. Jaffe (Lou—Torts— Buffalo; myself—Administrative Law—Harvard), and Prof. Jaffe, who was the Dean of the Buffalo Law School from 1948 to 1950, was instrumental in my coming to Buffalo in 1964 (I seriously asked him, “Where’s Buffalo?”). On arrival, I taught Administrative Law and (at the “suggestion” of Dean Jack Hyman) Gratuitous Transfers (then called Wills and Trusts). Lou, however, had other plans for me and, in a few short years, he had captured my interests and drafted me into tax, which, with Gratuitous Transfers, I have taught ever after.

389

Copyright © 2007 by Buffalo Law Review 390 BUFFALO LAW REVIEW [Vol. 55 taxed again and that untaxed receipts are eventually taxed once, how could such a plaintiff have any cost basis at all, given the § 104(a)(2) exclusion?” And as the students would either begin to nod in assent to the zero basis implication of Lou’s question, or continue to express their bewilderment, he would deliver the message: “But, if the plaintiff’s basis in Blackacre is zero— indeed—” he would boom, “if it is anything less than its value of $100,000, then if Blackacre is immediately sold, the plaintiff would have gross income on the sale—right? And if that happened what would that do to the Congressional exclusion policy behind §104(a)(2)?” And so the students would begin to see—first, the specific point that even though there was no statute or regulation which set forth the proper result in haec verba, the basis of the plaintiff had to be $100,000 to preserve and carry out the Congressional purpose to forever exclude damages for personal injury. And they also saw, without having it dictated, the larger point that, although the internal coherency of the Code is not always visible, it is discoverable by reasoned analysis, if we “let our minds be bold.” And finally, perhaps most importantly, they saw that tax was the proper business of law students, with the power to excite and challenge the mind, and to satisfy its desire to explore and discover. It was that type of teaching by joint and mutual discovery which endeared Lou to students, which sent many of them off to become successful tax practitioners, and which maintains their gratitude to this day. In his tax scholarship, Lou exhibited the same striving to analyze and reveal the underlying (albeit sometimes counterintuitive) coherency of the Code. Examples abound, but I pick one where, arguably like the Buffalo Bills (of whom Lou was a devoted but critical fan), although he should have gotten to wear a Super Bowl ring in public, he had to be satisfied with the fact that, for those who know better, he deserved one. My reference is to a question that has baffled tax people over the years—the proper way for an income tax system to treat non-recourse debt. It starts with an analysis of why we allow taxpayers to exclude borrowed money to begin with. It continues into the various approaches to dealing

Copyright © 2007 by Buffalo Law Review 2007] TRIBUTE TO LOUIS DEL COTTO 391 with non-payment of previously excluded borrowing. At its apex, it reached the Supreme Court in the form of the following question:

Over 35 years ago, in Crane v. Commissioner, this Court ruled that a taxpayer, who sold property encumbered by a nonrecourse mortgage (the amount of the mortgage being less than the property’s value), must include the unpaid balance of the mortgage in the computation of the amount the taxpayer realized on the sale. The case now before us presents the question whether the same rule applies when the unpaid amount of the nonrecourse mortgage exceeds the fair market value of the property sold.2

Over a decade earlier, Lou had tackled the Crane case, and in his piece had suggested, albeit without substantial elaboration, that the answer to the Tufts question was to be found in the tax benefit rule.3 Eight years later, still many years before Tufts, Lou nailed the point down, as part of his tour de force on sales and exchanges in the Buffalo Law Review4:

[Where] the amount of non-recourse debt . . . exceeds the value of the encumbered property. . . . there has been realized a benefit in the amount of such excess, but such benefit arises from past depreciation of cost basis arising from the mortgage or from borrowing on the value of the property. Both the depreciation and the borrowing give the taxpayer untaxed cash that should in some manner be included in his gross income. However, where the mortgage can be satisfied only from the property, the excess amount is not a benefit received because of relief from the mortgage. Therefore the excess should not be part of the amount realized from a sale or other disposition of the property, since it is outside the ambit of section 1001(b). And, absent personal liability for the mortgage, the amount of such excess cannot be taxed as debt-discharge income. The appropriate remedy, therefore, would appear to lie in the

2. Commissioner v. Tufts, 461 U.S. 300, 301-02 (1983) (citation omitted). 3. Louis A. Del Cotto, Basis and Amount Realized Under Crane: A Current View of Some Tax Effects of Mortgage Financing, 118 U. PA. L. REV. 69, 85-86 (1969). The suggestion was not lost on Professor Boris Bittker. See Boris I. Bittker, Tax Shelters, Nonrecourse Debt, and the Crane Case, 33 TAX. L. REV. 277, 285 n.14 (1978). 4. Louis A. Del Cotto, Sales and Other Dispositions of Property Under Section 1001: The Taxable Event, Amount Realized and Related Problems of Basis, 26 BUFF. L. REV. 219 (1977).

application of the tax benefit rule. The taxpayer has received the benefit of the mortgage, either as cost basis giving him tax -free cash through depreciation deductions or as a result of tax -free borrowing on the value of the property. Therefore, transfer of the property is the proper occasion to make him account for such past tax benefit by including the excess of debt over property value in his gross income as gain from past depreciation deductions or from past tax free borrowing . . . .

. . .

. . . When the property is disposed of, it becomes clear that the transferor will not pay the amount of the mortgage in excess of his adjusted basis, which amount supported previous depreciation deductions, and therefore the proper tax benefit should be recaptured by the tax benefit rule. Similar reasoning applies if the mortgage secures a borrowing by taxpayer on any appreciation in the property. When on conveyance of the property it becomes clear that the borrowing will not be repaid, the tax benefit received from the prior tax-free borrowing should be recaptured even though it does not arise from the sale of property whose value has fallen below the amount of a non-recourse mortgage. 5

On March 7, 1983 the Supreme Court decided Hillsboro National Bank v. Commissioner,6 and for the first time, definitively explained and approved the tax-benefit rule in the following language: “The basic purpose of the tax benefit rule is to achieve rough transactional parity in tax . . . and to protect the Government and the taxpayer from the adverse effects of reporting a transaction on the basis of assumptions that an event in a subsequent year proves to have been erroneous.”7 Less than two months later—on May 2, 1983—the Court decided Tufts in favor of the Government, holding that the amount realized on the disposition of the property must include the face amount of the non-recourse mortgage even though it exceeds the value of the mortgaged property. The Court explained:

The rationale for this treatment is that the original inclusion of the amount of the mortgage in basis rested on the assumption that

5. Id. at 322-32. 6. 460 U.S. 370 (1983) 7. Id. at 383.

the mortgagor incurred an obligation to repay. Moreover, this treatment balances the fact that the mortgagor originally received the proceeds of the nonrecourse loan tax-free on the same assumption. Unless the outstanding amount of the mortgage is deemed to be realized, the mortgagor effectively will have received untaxed income at the time the loan was extended and will have received an unwarranted increase in the basis of his property. 8

Now, I ask you, does that not sound just like the tax- benefit rule? And, more relevantly, does it not sound to you just like Lou Del Cotto in the Buffalo Law Review in 1977, especially in light of the above-quoted basic rationale of the tax-benefit rule given in Hillsboro? Would you not, therefore, expect from the Tufts court a citation somewhat like “See Del Cotto, etc., etc.”? What followed immediately however, was not such a citation, but a begrudging footnote 8:

“Although the Crane rule has some affinity with the tax benefit rule, see Bittker, supra, at 283; Del Cotto, Sales and Other Dispositions of Property Under Section 1001: The Taxable Event, Amount Realized and Related Problems of Basis, 26 Buffalo L. Rev. 219, 323-324 (1977), the analysis we adopt is different [sic]. Our analysis applies even in the situation to which no deductions are taken. [Does the Hillsboro formulation distinguish between the tax benefit of a deduction and that of an exclusion?] It focuses on the obligation to repay and its subsequent extinguishment, not on the taking and recovers of deductions. [Did you not just say that the focus was on an “assumption”?] See generally Note, 82 Colum. L. Rev., at 1526-1529.”9

Well, Lou, you had to be satisfied with “some affinity.” You did not get the consanguinity you deserved. And, like Scott Norwood after Super Bowl XXV, you took it without whining. But “we” all know that you were not wide right— that you were right down the middle, and that footnote 8 in Tufts will eventually suffer the same fate as footnote 37 in Crane. Until then, of course, the whole episode will continue to serve the overriding purpose of your teaching and scholarship—to challenge, to discover, to reveal. I conclude on the upbeat: I thank my esteemed colleague publicly for the intellectual ride we had together,

8. 461 U.S. 300, 309 (1983). 9. Id. at 310 n.8 (bracketed italics added.)

Copyright © 2007 by Buffalo Law Review 394 BUFFALO LAW REVIEW [Vol. 55 both in class and on paper. 10 It began with that first summer before I started teaching tax, when he spent countless hours giving unselfishly of the insights he had gained over many years of thinking and teaching. It continued until the end, and although my debt to him may be non-recourse, it is—as he taught us that Crane taught— every bit as real as is the debt my wife Rita and I owe Lou’s wife Bea for, inter multa alia, the meat ball recipe, and as are the debts my children Mary and Michael owe “Aunt Bea” and “Uncle Lou” for being their proxy Godparents and for being a loving part of their Buffalo family.

10. See generally Louis A. Del Cotto & Kenneth F. Joyce, Taxation of the Trust Annuity: The Unitrust Under the Constitution and the Internal Revenue Code, 23 TAX L. REV. 257 (1968); Kenneth F. Joyce & Louis A. Del Cotto, The AB (ABC) and BA Transactions: An Economic and Tax Analysis of Reserved and Carved Out Income Interests, 31 TAX L. REV. 121 (1976); Louis A. Del Cotto & Kenneth F. Joyce, Inherited Excess Mortgage Property: Death and the Inherited Tax Shelter, 34 TAX L. REV. 569 (1979); Louis A. Del Cotto & Kenneth F. Joyce, Interest-Free Loans: The Odyssey of a Misnomer, 35 TAX L. REV. 459 (1980); Louis A. Del Cotto & Kenneth F. Joyce, Interest-Free Loans and Dickman v. Commissioner: A Letter to the Supreme Court, 32 BUFF. L. REV. 589 (1984), reprinted in TAX NOTES, June 4, 1984.

Remembering Louis Del Cotto

DONALD C. LUBICK† Lou Del Cotto was a remarkable example of our paradigm of American character. Born in Europe, he dedicated himself through hard work to remarkable achievements. After military service in World War II, he completed his education and became a lawyer. For him, the law represented that which was best in America—justice and fairness to all. He never compromised his ideals of pursuit of legal and economic justice for America. My eleven years associated with the law faculty at the University of Buffalo did not overlap his tenure. Hence, I did not have the privilege of having him as a colleague in his dedication to instilling in graduating students the highest standards of quality of work and ethical conduct. Nevertheless, our friendship dating from the first days of his practice following law school enabled me as a close friend to take his measure as an emerging giant in the profession as well as a superb human being. His early years as a practitioner in Buffalo under the aegis of Al Mugel, one of the great luminaries of the law in Buffalo, both as practitioner and professor at the law school, coincided with mine. We both worked as tax practitioners, particularly in the field of employee benefits. Here he was recognized as a careful and scholarly practitioner in his work. Perhaps at that time his inclination to devote himself as an influence upon the development of young lawyers came when he, along with a few others, decided to offer a bar review course in Buffalo for young graduates who had no other choice than to spend weeks of preparation in New

† Assistant Secretary of the Treasury, 1977-1981 and 1996-1999. Except for periods of government service, Donald Lubick was an associate, and then a partner, in the Buffalo-headquartered law firm, Hodgson Russ LLP, from 1950- 1994. He has also been a member of the law faculties of University at Buffalo, Harvard University, and American University.

395

York City before their bar exam. He was most successful at that. His time in law practice prepared him well for the switch to a career where he achieved nonpareil status as an academician. He wrote a number of articles that were meticulous and thoughtful contributions to tax law learning. But his real place and most lasting achievements were as an inspirational teacher. In the classroom his care and helpfulness to young students were matched with his clarity and effectiveness in conveying understanding. As a practicing lawyer in Buffalo during the time he was teaching, I relied upon his imprimatur in recruiting the best, and best prepared, law students for my law firm. Almost all of them became my partners and stack up with the best practitioners of tax law in the country. All arrived with unlimited awe and admiration for the learning they had acquired from Lou Del Cotto. I tried at one time when I was serving in the U.S. Treasury to entice Lou to leave teaching to become a judge of the Tax Court. But that was not to be, and his reluctance to leave teaching was well justified in his continued impact in molding and inspiring top flight lawyers. But I also remember many fine times away from the law with Lou—sports, sailing, music. Lou played classical guitar proficiently and loved classical music. We spent many hours listening and he was a great source of instruction in appreciation for me. Whether his students, his colleagues, the practicing bar, his personal friends—all are the better for their time with Lou. His mark is etched in our fond memories.